Process Ltd sells a product, the Beaten, and is having problems within its credit control department. The annual demand for the Beaten is 542,000 units, with a selling price of 20 per unit.

However, customers are not paying within the agreed 35 day limit. They are taking 60 days at the moment. The Finance Director is therefore considering offering an early settlement discount of 2% for customers who do pay within 20 days. It is thought that 45% of customers would take up the early settlement discount offer.

The Finance Director feels that she could train the current credit controller to be more efficient. That would mean increasing his salary by 5,000 per annum. She also thinks that bad debts would reduce. Currently they stand at 2% of turnover, but that should reduce to 1%.

The current overdraft interest rate is 12%.

Requirements:

1. i) Calculate the net value in sterling of Process Ltd offering the early settlement discount to its customers.

2. What recommendation would you give financially to the Finance Director? What concerns would you have about offering the recommendation?

b) Describe how factoring of receivables could work for Process Ltd.